Since December 8, the crypto market has fallen for three consecutive days, with the overall market capitalization dropping from a peak of $3.7 trillion on December 8 to $3.45 trillion on December 10. What factors have led to this decline during the sustained uptrend?
News aspect
Google Quantum Chip Progress: In the early morning of December 10, Beijing time, Google launched its latest quantum chip 'Willow' and claimed significant achievements. There are concerns that this chip may pose a threat to the security of cryptocurrencies. Mining for cryptocurrencies like Bitcoin involves solving complex mathematical problems to confirm transactions and record them on the blockchain. The demand for mining power is related to the number of 'miners' in the network and their computing power. Google's quantum chip 'Willow' has extraordinary computational capability, completing a 'standard benchmark calculation' in under five minutes, which would take today's fastest computers at least 10^25 years to complete. If applied to mining, it would greatly enhance mining efficiency, making traditional mining machines hard to compete with in terms of cost and efficiency. On the other hand, the security of cryptocurrencies relies on mathematical problems in cryptography, such as elliptic curve encryption and RSA encryption, which are based on the assumption that they cannot be cracked within a reasonable time with current computational power. Quantum computers can run Shor's algorithm and other quantum algorithms specifically designed to crack encryption technologies based on large number factorization. Once quantum chip technology matures sufficiently, its powerful computing ability may allow the current cryptocurrency encryption systems to be cracked, leading to the leakage of users' private keys. All these factors have affected investor confidence, resulting in a market downturn.
Citron Research Shorting MicroStrategy Stocks: The large purchases of Bitcoin by institutions like MicroStrategy have somewhat driven up Bitcoin prices, but they have also raised market concerns and worries. The well-known Citron Research has pointed out that MicroStrategy is 'overheated' and has shorted its stocks, causing MicroStrategy's stock to drop 20% in one day. MicroStrategy stocks have been referred to as shadow Bitcoin, and the shorting actions by institutions have also influenced the sentiment in the crypto market to some extent.
Microsoft Will Not Invest in Bitcoin for Now: Major shareholders of Microsoft opposed the company's Bitcoin investment proposal on December 10 local time. Earlier, Microsoft's board had urged shareholders to reject a suggestion from the National Center for Public Policy Research to invest 1% of total assets in Bitcoin to hedge against inflation.
Market aspect
Long-term investors are taking profits.
Recently, some KOLs and institutions have been continuously selling. For example, on December 4, it was reported that Meitu sold the Bitcoin and Ethereum they had previously accumulated, cashing out approximately $180 million. These long-term holders accumulated substantial profits during the previous market uptrend. As the market showed signs of adjustment, they chose to take profits, and the surge of sell orders further exacerbated market turbulence, leading to a significant price drop.
Market sentiment is overheated, with a decline in trading volume over the past two days: According to Coinglass data, both contract and spot trading volumes peaked on December 8 and 9, while the overall trading volume in the cryptocurrency market declined to some extent on the 10th and 11th.
Similarly, on the 8th and 9th, market sentiment was hot, and long positions reached an all-time high. However, with the overall market decline, the number of liquidations within 24 hours from the 9th to the 10th reached a new high in this bull market, amounting to $1.712 billion, of which long positions accounted for $1.55 billion and short positions for $162 million. This also indicates that market sentiment is overheated, with too many people going long. As the market enters a correction, clearing some leverage can make future price increases healthier and more sustainable.
Macroeconomic aspect
U.S. CPI Data Will Be Released: The U.S. will release its November CPI data at 8:30 AM local time on December 11. Before the data is published, volatility in the crypto market is a normal occurrence. CPI is an important indicator for measuring inflation, and the U.S. will determine the rate cut in December based on the inflation situation. The extent of the rate cut and the degree of monetary easing will affect people's preferences for risk assets.
Strengthening of the dollar: Recently, the dollar has strengthened, with the dollar index closing at 106.11 and 106.1926 on December 9 and 10, respectively, up 0.09% and 0.08% from the previous trading day. The strengthening of the dollar is often viewed as a signal of relative strength in the U.S. economy, while it may also suggest some uncertainty in the global economy. In this situation, investors' risk appetite generally decreases.
At the same time, the strengthening of the dollar has increased the attractiveness of dollar assets, such as the rising yields of risk-free assets like U.S. Treasury bonds. Investors, in pursuit of higher returns and asset safety, will transfer funds from risk assets like cryptocurrencies to dollar assets, thereby exerting downward pressure on cryptocurrency prices.
Since December 8, the crypto market has fallen for three consecutive days, with the overall market capitalization dropping from a peak of $3.7 trillion on December 8 to $3.45 trillion on December 10. What factors have led to this decline during the sustained uptrend?
News aspect
Google Quantum Chip Progress: In the early morning of December 10, Beijing time, Google launched its latest quantum chip 'Willow' and claimed significant achievements. There are concerns that this chip may pose a threat to the security of cryptocurrencies. Mining for cryptocurrencies like Bitcoin involves solving complex mathematical problems to confirm transactions and record them on the blockchain. The demand for mining power is related to the number of 'miners' in the network and their computing power. Google's quantum chip 'Willow' has extraordinary computational capability, completing a 'standard benchmark calculation' in under five minutes, which would take today's fastest computers at least 10^25 years to complete. If applied to mining, it would greatly enhance mining efficiency, making traditional mining machines hard to compete with in terms of cost and efficiency. On the other hand, the security of cryptocurrencies relies on mathematical problems in cryptography, such as elliptic curve encryption and RSA encryption, which are based on the assumption that they cannot be cracked within a reasonable time with current computational power. Quantum computers can run Shor's algorithm and other quantum algorithms specifically designed to crack encryption technologies based on large number factorization. Once quantum chip technology matures sufficiently, its powerful computing ability may allow the current cryptocurrency encryption systems to be cracked, leading to the leakage of users' private keys. All these factors have affected investor confidence, resulting in a market downturn.
Citron Research Shorting MicroStrategy Stocks: The large purchases of Bitcoin by institutions like MicroStrategy have somewhat driven up Bitcoin prices, but they have also raised market concerns and worries. The well-known Citron Research has pointed out that MicroStrategy is 'overheated' and has shorted its stocks, causing MicroStrategy's stock to drop 20% in one day. MicroStrategy stocks have been referred to as shadow Bitcoin, and the shorting actions by institutions have also influenced the sentiment in the crypto market to some extent.
Microsoft Will Not Invest in Bitcoin for Now: Major shareholders of Microsoft opposed the company's Bitcoin investment proposal on December 10 local time. Earlier, Microsoft's board had urged shareholders to reject a suggestion from the National Center for Public Policy Research to invest 1% of total assets in Bitcoin to hedge against inflation.
Market aspect
Long-term investors are taking profits.
Recently, some KOLs and institutions have been continuously selling. For example, on December 4, it was reported that Meitu sold the Bitcoin and Ethereum they had previously accumulated, cashing out approximately $180 million. These long-term holders accumulated substantial profits during the previous market uptrend. As the market showed signs of adjustment, they chose to take profits, and the surge of sell orders further exacerbated market turbulence, leading to a significant price drop.
Market sentiment is overheated, with a decline in trading volume over the past two days: According to Coinglass data, both contract and spot trading volumes peaked on December 8 and 9, while the overall trading volume in the cryptocurrency market declined to some extent on the 10th and 11th.
Similarly, on the 8th and 9th, market sentiment was hot, and long positions reached an all-time high. However, with the overall market decline, the number of liquidations within 24 hours from the 9th to the 10th reached a new high in this bull market, amounting to $1.712 billion, of which long positions accounted for $1.55 billion and short positions for $162 million. This also indicates that market sentiment is overheated, with too many people going long. As the market enters a correction, clearing some leverage can make future price increases healthier and more sustainable.
Macroeconomic aspect
U.S. CPI Data Will Be Released: The U.S. will release its November CPI data at 8:30 AM local time on December 11. Before the data is published, volatility in the crypto market is a normal occurrence. CPI is an important indicator for measuring inflation, and the U.S. will determine the rate cut in December based on the inflation situation. The extent of the rate cut and the degree of monetary easing will affect people's preferences for risk assets.
Strengthening of the dollar: Recently, the dollar has strengthened, with the dollar index closing at 106.11 and 106.1926 on December 9 and 10, respectively, up 0.09% and 0.08% from the previous trading day. The strengthening of the dollar is often viewed as a signal of relative strength in the U.S. economy, while it may also suggest some uncertainty in the global economy. In this situation, investors' risk appetite generally decreases.
At the same time, the strengthening of the dollar has increased the attractiveness of dollar assets, such as the rising yields of risk-free assets like U.S. Treasury bonds. Investors, in pursuit of higher returns and asset safety, will transfer funds from risk assets like cryptocurrencies to dollar assets, thereby exerting downward pressure on cryptocurrency prices.
